France Faces Moody's Rating Verdict as Bond Yields Hit 2002 Highs

France faces the threat of a sovereign ratings downgrade on Friday, adding pressure on a government struggling to contain social unrest and shore up strained finances. Moody's review decision is due after U.S. markets close at 2000 GMT, with most analysts expecting a cut to its Aa3 rating, which has carried a negative outlook since October last year. A downgrade would align Moody's with S&P and Fitch, which moved earlier after France's 2024 snap election produced a hung parliament and political paralysis. French borrowing costs already exceed those of lower-rated peers such as Italy. The risk premium on French government debt over German bonds hit its highest in 15 years on Thursday, while the benchmark 10-year bond yield reached 5.14%, its highest since July 2002. With a downgrade largely priced in, attention will turn to Moody's outlook. Moody's has said the government's ability to overcome "fragmentation in parliament" would be key. The lower house has scrapped some key savings measures in the 2027 budget, which targets a deficit of 5% of output versus 5.4% this year.